An emerging trend has been quietly brewing among a very important group of business stakeholders: your customers.
In the background, while you have been putting out fires from Covid, the labour crisis, supply chain issues, and rising prices, your customers have been increasingly spending more time scrutinizing HOW you run your business.
A recent study conducted by Economist Impact showed that 74% of executives believed that consumers and customers are increasingly holding organizations to account for their ESG (Environmental Social and Governance) initiatives.
However, there is a disconnect. 70% of respondents in this same study believed in aligning ESG goals with overall business strategy, but only 43% have taken such steps.
I’ve had several discussions with business owners and leaders over the last few weeks about ESG. Many are wondering what it means, why and how it affects them, and what they should do.
ESG affects all business owners and leaders.
Organizations are facing greater scrutiny from better-informed and critical customers than ever before. The tolerance level of unethical activity will continue to fall. Customers, employees and stakeholders are paying more attention and are demanding more accountability and transparency. Customers want to buy from and work with companies that are authentic, empathetic and have a social purpose. Companies they trust.
Many ESG conversations start from a financial lens, as ESG criteria are an increasingly popular way for investors to evaluate companies in which they might want to invest.
An accountant friend of mine defines ESG as "assessing risk.” Another says, “It’s about assessing the company to see if and what value they put on social and environmental issues.” Others talk about implementing ESG practices to "strengthen an organization’s position in the marketplace and to be a checkmark in the box for investors". It should not simply be an item that's checked off.
- Environmental criteria consider how a company performs as a steward of the environment.
- Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates.
- Governance involves overseeing the control and direction of an organization. Criteria includes leadership, internal controls, diversity, equity and inclusion, directors and shareholders.
The essence of social and governance involves relationships and ethics. We constantly make ethical choices, whether we realize it or not.
Ethical behaviour and a trusting relationship go hand in hand - you can’t have one without the other.
Employees are placing greater emphasis on their employer's commitment to ESG. They are more likely to want to work for firms that are purpose-driven and have values they can identify with. For example, for employees it may be about product safety, how a product is manufactured, sustainability, climate change, indigenous relations or diversity, inclusion and equity in the workplace.
ESG is about doing the right thing and acting in the stakeholder's and the public’s best interests.
You can never go wrong when you act in the best interests of employees, customers, and stakeholders. This is Principle #6 in my building trust model. In fact, as many of you have heard me say in workshops, when you behave with integrity and commit to ESG initiatives, you’ll be rewarded.
When I say this in a keynote speech (whether live or virtual), there are always lots of heads nodding in agreement. Yet many business owners and leaders
tell me they don’t know where to start. Here are the first four steps:
1. Clarify your purpose and your values. Like most strategies, it starts with company purpose and values.
2. Identify the organization’s critical trust risk points.
3. Identify issues and causes that are important to employees, customers and stakeholders, including the community you operate in. Stakeholders have a constellation of topics and issues that are important to them; identify them, prioritize them. Are they aligned with the company’s purpose and its values?
4. Evaluate the skillset of the team. The critical trust risk point for every organization is the people: how they communicate, how they serve, and how they behave. Social and governance criteria involve relationships and ethics. Does everyone on the team have the skills to build relationships of trust?
When ethics determine how you serve your client, you will see exponential growth in trust. And they will return to you for advice, products and solutions.
The main point of this article is to raise your awareness of ESG and to point out that it is increasingly important to your customers and stakeholders. While subject matter experts are writing books on the topic, for most small and medium-sized private business owners, following the 4 steps above will keep your company in tune with your market.
I welcome the opportunity to hear from you on any issues raised in this article - please call or reply to discuss.
